Fed Trims QE While Keeping Interest Rates Low

  • Posted Wednesday, July 30, 2014 at 08:40 PM

TANGIBLE INVESTMENTS - Los Angeles - by James O'Dell - Gold and Silver prices are mixed in choppy but thin trade on Wednesday, with Gold easing $3.75 or 0.29 percent to $1,294.80 an ounce, while Silver, at the time of this writing, was up one cent to $20.59 an ounce after the Commerce Department reported on Wednesday that second quarter gross domestic product (GDP) rose at a seasonally adjusted annual rate of 4 percent.

The stronger than expected GDP data trumped a weak report by ADP on the labor market that said U.S. companies hired just 218,000 workers in July, well below the 230,000 economists were expecting. The two day Federal Open Market Committee (FOMC) meeting ended moments ago with the Fed admitting that plenty of slack remains in the labor market even as the economy continues to improve.

“A range of labor-market indicators suggests that there remains significant underutilization of labor resources,” said the FOMC in its statement today in Washington. “The likelihood of inflation running persistently below 2 percent has diminished somewhat.”

The Fed's quantitative easing (QE) program now stands at $25 billion each month. In August, the Fed will purchase $10 billion in mortgage backed securities (MBSs) and $15 billion in Treasuries, according to the policy statement released after the July FOMC meeting. Policymakers reiterated their promise to reduce bond buying in “further measured steps” while keeping interest rates low for a “considerable time” after purchases have ended.

Fed Chief Yellen, in her semi-annual testimony to Congress said that “We need to be careful to make sure that the economy is on a solid trajectory before we consider raising interest rates.” In the meantime, investors continue to monitor developments in the Middle East and Ukraine, as the death toll continues to rise dramatically in both regions.

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